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Large Hospital Networks and Their Impact on Employee Wages

As employees look to increase their wages while their employers are focused on minimizing costs, medical costs and with that, health insurance premiums, appear to be the elephant in the room. The California Health Care Foundation reported that between 2011 and 2016, the yearly cost of health insurance for a family rose by $5,208 or by 36% while wages have only risen by $3,037 or 8%. If healthcare costs stayed flat during this time, we would have seen wages increase by $8,245 for a family, substantially increasing the family’s spending power. What gives? California Attorney General Xavier Becerra’s lawsuit against Sutter Health suggests a big part of the problem is hospital networks with too much power inflating medical prices.

At the end of March, California Attorney General Xavier Becerra filed a lawsuit alleging that Sutter Health, the dominant hospital network in Northern California, “illegally inflated prices” from insurers, employers, and patients. Becerra argues that Sutter’s market power has driven in-patient costs in Northern California to be as much as 70% higher than in Southern California. He goes on to suggest that these higher costs have “injured the general economy of Northern California and thus of the state”. Many employers are looking to Sutter and other large hospital systems and wondering what they can do about this. At Solid Health Insurance Services, we understand the local provider networks and local plans and we can help your business find the right plans for your budget and medical needs.

Sutter Health is being accused of using its hospital-network dominance to inflate prices for insurers and thus patients and employers. The case was initially filed by a health plan associated with United Food and Commercial Workers union and may involve as many as 9,000 employers and unions who were contracted with Sutter Health since 2002, covering millions of employees. The plaintiffs argue that they may have overpaid as much as $700 million for services at Sutter. A USC study from 2016 by Glenn Melnick and Katya Fonkych documented that prices per hospital admission have risen by 76% for California from 2004 to 2013 while they rose by 113% at hospitals that were part of Sutter Health and Dignity Health systems. Their research suggests that hospital prices were “driven in part by increased market power by large, multi-hospital systems”. To add to the fire, in 2008 the FTC or Federal Trade Commission reexamined Sutter Health’s 1999 acquisition of Oakland’s Summit Medical Center, only 2.5 miles away from Alta Bates Medical Center in Berkeley, a Sutter Health affiliate. The FTC noticed that while Summit’s prices had been lower than Alta Bate’s, after the acquisition, its prices rose by as much as 72%, “among the largest of any comparable hospital in California.” “The merger of a higher priced hospital with a lower-priced hospital produced two higher-priced hospitals.” Unfortunately, this is not unique to Northern California, yet we see more competition and thus lower premiums in Southern California.

With medical costs out of control and health insurance premiums impacting our salaries and the bottom lines of businesses, how can we stop these hospital networks from becoming too powerful and inflating prices? Melnick believes that we cannot rely on the Federal Government to act and we must instead rely on our state legislature. For one, Melnick argues we should get rid of all-or-none contracting which Sutter and many other hospital networks consistently uses to force insurers to cover all or none of its providers and hospitals. Another potential solution would be to modify the current anti-trust regulations to keep markets competitive and pass the savings on to consumers. We must also prohibit hospital networks from adding other clauses to their insurance contracts that hinder members from using more affordable providers. Furthermore, we must discourage hospitals from contracting out-of-network providers using in-network facilities, especially in an emergency room setting. As Melnick puts it, “Without such actions, families will watch wage gains that are rightfully theirs disappear into the coffers of doctors and hospitals”.  

As independent insurance agents, we at Solid Health Insurance Services always want our clients to stay up-to-date about their healthcare. Employers are advised to reassess their offered plans to see if the health insurance plans are affordable and cover the preferred providers of the key employees. Employees must be vocal about which providers are vital to their health but also be conscious of the costs involved. We all have to deal with these large hospital networks. Do not hesitate to contact us at 310-909-6135 or email us at info@solidhealthinsurance.com to review your group benefits to find you the most affordable plans with the best provider networks. Our services are free of charge and we hope that we can help you with your budget and bring income back to your employees through the premium savings. To get a free group quote, please click here.

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